Morgan Stanley has released a research report maintaining an "Overweight" rating on Swire Properties (01972), citing optimism over improving fundamentals in Hong Kong's office market, with the supply peak expected to arrive in 2026. The bank also highlights resilience in retail sales across the company's China malls, which benefit from duty-free shopping trends and inbound tourism flows. Furthermore, recurring income growth from new investment properties in China, along with capital recycling initiatives and a robust balance sheet, are all seen as factors that could offset potential downside risks.

The target price has been reduced by 3% to HK$28 from HK$29, based on a maintained 30% discount rate applied to revised net asset value (NAV) forecasts. This discount sits one standard deviation above the historical average since 2011. The increase in NAV is primarily driven by lower net debt, partially offset by declines in the valuation of China office assets and Hong Kong property development projects.

Following the incorporation of the company's first-half 2026 results, Morgan Stanley has raised its underlying earnings per share (EPS) forecasts for fiscal years 2026, 2027, and 2028 by 2.3%, 1.8%, and 1.5%, respectively. The adjustments reflect updated assumptions on retail and office rental reversions, occupancy rates, and interest rates, alongside revisions to the booking and completion timelines of property development projects. Higher-than-expected gains from property sales also contribute to the upward revisions.

The bank has kept its dividend per share forecasts for fiscal 2026 through 2028 unchanged at HK$1.21, HK$1.27, and HK$1.33, respectively. This implies a 5% year-on-year growth across the forecast period, supported by the ongoing expansion of its China retail portfolio and proactive capital recycling efforts.

Morgan Stanley expects Hong Kong office rental reversions to turn neutral by 2027, driven by sustained demand for premium office space, while Swire Properties' Pacific Place mall is anticipated to see positive rental reversions.